Banca Monte dei Paschi di Siena SpA
MIL:BMPS
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
2.8164
6.156
|
| Price Target |
|
We'll email you a reminder when the closing price reaches EUR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Banca Monte dei Paschi di Siena SpA
You don't have any saved screeners yet
Good morning, everybody. Welcome to all of you. It is a great pleasure for me to have a front row seat in the oldest bank in the world and to have the opportunity to present to you Monte dei Paschi's first quarter results.
Let me start by saying that in this first 3 months, I have spent in Siena, focusing or understanding the organization, I have to say unnecessary complex. I have got the belief that Monte dei Paschi has a strong commercial potential. As you know, currently, I'm working together with the team on the review of the previous business plans. The results of this work will be presented on June 23. I believe that our first quarter that should be seen from this perspective.
Let's now move on to some highlights. We reported a positive result of EUR 10 million after the loss reported in Q4. We improved the coverage ratio by 283 bps in the quarter. The comparison of the profit with the first quarter of last year is influenced by some material items, which amount in total around EUR 170 million. I'm referring to the higher gains on security, the lower provision for risk and the lower sustaining charge reported last year.
The bank has shown in the quarter positive signals of commercial resilience, which is reflected in the recurrent gross profit that was reported at the level of Q4. In fact, Q1 revenues are offsetting the higher cost base, which level confirms room for efficiencies. Also the comparison with the previous quarter should take into consideration that Q4 included some positive accrual adjustments.
Commercial resilience is confirmed also by the 3 main drivers of the quarter results: the volumes trend; the improvement of the commercial spread, thanks to the decrease of the deposit cost; the positive wealth management net inflow after the negative balance of the previous quarter.
On the side of the asset quality, as I mentioned at the beginning, the bank increased in the quarter the NPE coverage by 283 bps. The gross NPE ratio amounts to 4.8%, with a slight reduction of NPE stock. The cost of risk stands at 56 bps, which is reflecting the prudent approach in managing the risk that we want to use also in the future. The Tier 1 ratio fully loaded is 10.8%, up by 32 bps year-on-year and lower by 28 bps compared to the previous quarter, mainly due to negative fair value through OCI's reserve.
Let's now move to some results in details. I will guide quickly through these few slides. So as I mentioned, net profit, as you can see on the slide, positive by EUR 10 million compared with the loss that we reported in Q4. As I mentioned, comparison year-on-year is impacted by higher gains on securities over provision for risk and lower sustaining charge.
The net operating profit is practically reflecting the same dynamic in the first quarter of this year is as well influenced by some gain on security that, by the way, was, as I mentioned, much lower than compared to the previous year.
Moving on the gross operating profit. As you can see, quarter-on-quarter, we reported a growth of 23.3%, thanks to the improvement on net interest income, both TLTRO and commercial, the gain on security. We were capable to offset the increase of cost. But as I mentioned at the beginning, quarter-on-quarter were impacted by some adjustments of the previous year. The comparison with the previous year, again, is influenced by the higher level of gain of security we reported in Q1 of last year.
As you can see from the slide, we reported an improvement year-on-year of the spread, driven by the improvement of the decrease of the funding rate that enabled us to offset the decrease of the lending rate. The main reason the improvement was thanks to the lower funding rate we reported in some term deposits successfully. We practically closed by keeping anyway, especially in retail, the level of volumes on the current account.
Moving to the next slide, you can see that we reported an overall growth year-on-year and also quarter-on-quarter. We are pleased with the level of the resilience of the retail loans that, as you know, are strategic for us. And we reported as well a growth in corporate where our focus is much more oriented to the small- and medium-sized companies.
On the funding composition side, as you can see, we improved overall mix, thanks to the reduction in deposit while maintaining stable retail volumes. The decrease of corporate was part of our strategy, having in consideration that we kept at the beginning last year, some expensive term deposits relating to corporate customers.
Looking at the Italian govies portfolio, we have a slight increase of banking book portfolio. We kept stable the credit spread sensitivity as well the lower duration in the fair value through OCI company. The trading part, as you know, is managed by our subsidiary, Monte dei Paschi Capital Services is a market specialist in this area.
Looking at the net fee and commission income. As you can see, the banking fee are in line, practically year-on-year and almost also quarter-on-quarter, having in mind that the quarterly -- the last quarter, as you know, there's some seasonality effect.
On the side of asset management, we reported positive growth quarter by quarter, driven mainly by the upfront fees, slightly decreased year-on-year. But overall, the level of this fees kept satisfactory -- at satisfactory level 1.
We reported a decrease of the overall underactive funding, both year-on-year and quarter-on-quarter. This is driven by market valuation effect and some single large financial companies outflow in some way also managed by the bank. As far as asset under management stock, as you can see, we reported a positive increase net of the market effect.
In fact, moving on to the next slide, you can see that in this quarter, we have a positive net inflow recovering compared with the last quarter where we reported a negative balance. Operating costs, the total cost are slightly below the previous year, while we reported an increase of the cost compared to the last quarter.
As I mentioned at the beginning, we have to take into consideration that in the last quarter, we -- the last quarter was positively impacted by some accrual adjustment. The total cost is one of the area on which the bank and myself are strongly focused knowing that this is one of the crucial areas on which we have to get significant improvements.
Moving to the gross NPE stock. As you can see, the ratio is slightly down, both year-on-year and quarter-on-quarter. I meant the net NPE ratio as well as the stock slightly down. So we are progressing in the way to further reduce the stock of our portfolio being as well. The asset quality, one of the key element on which we want to be focused going forward.
The coverage and the cost of risk. As you can see on this slide, we improved by almost 300 bps our coverage. The coverage has been improved both in unlikely to pay and NPL. At the same time, I think it's worth to mention that our cost of risk in the quarter set at 56 bps is also reflecting, as I said at the beginning, the prudent approach we want to use also in the future.
Capital. Fully loaded Tier 1 at 10.8%, slightly up year-on-year, down compared to last quarter, mainly due to the fair value to OCI reserve with some marginal risk-weighted assets increase.
This slide, as you can see, we reported a significant reduction year-on-year for our Petitum related to disclosed financial information. We have a slight increase in the last quarter due to the threatened litigation, as usual, conservatively provisioned for.
Let me just add some closing remarks about the quarter. Positive net results, has improved coverage, room for efficiency, positive signals of commercial resilience reflected in the volumes trend and commercial funding optimization, fully loaded Tier 1 at 10.8%. We are progressing with the review of our business plan. We are focused on a few and clear priorities, aiming at supporting the customers, improving our operational efficiency, keeping a low risk profile and rebuilding the bank's solidity and capability to be profitable in a sustainable way.
Thank you very much. We are ready for your questions.
[Operator Instructions] The first question from the English conference call is from Antonio Reale with Morgan Stanley. Please go ahead.
Welcome to Mr. Lovaglio from my side. I have 3 questions, please, 2 on the quarter and 1 on the strategy to the extent you can talk about. The first one is on NII. And I see on Slide 9 of your presentation that you've increased your sovereign book in the quarter. And so my question is what should we expect from carry trade going forward in terms of NII contribution?
My second question is on capital. We've seen capital down Q-on-Q. Can you remind us the key drivers here going forward? I remember the management team had guided for EUR 5.9 billion of regulatory headwinds to come by the end of 2022. How much of that have you booked? Can you confirm that number? Do you still expect that to come through this year? That's my second question.
And lastly, I realize you've touched on it briefly, we've got a date in the calendar 23rd of June for the new business plan. I was wondering to the extent you can share a bit more color on what you think could be an indication of the high picture strategic pillars and I intend to extract value from the bank.
Okay. So starting with the net interest income. As you know, we have an important size to our TLTRO in our balance sheet. It's clear that the funding plan will be part -- an important part of our business plan. So I would like not to anticipate too much about our plans. So I will be much more precise as when we are going to present the plan on the date of 23.
As far as the capital, I think we are still almost EUR 5.5 billion, EUR 5.6 billion of risk-weighted asset inflation. But clearly, also the capital is an important part of our business plan because we are particularly looking at the segment of customer on which we want to work. We want to be focused on and it's clear that by definition, we are going to select the one with the lower density and the higher profitability adjusted by the risk. So in some way, I'm already anticipating some points of the [indiscernible].
I think I already mentioned that the bank has, on one side, a strong potential on commercial side that we have to exploit the best we can because I strongly believe that we have a strong opportunity to extract additional value from this bank, thanks to the strong presence and distribution, the professional people that we have and also the solid customer base that we kept through out of this period of time.
Clearly, we have to be focused on the areas that can bring us, as I mentioned, additional revenues consuming and making the capital more efficient. And this will contribute to make the bank also growing, and this is on the side of revenues, but I believe the fastest, more urgent action we have to put in place is on the side of the efficiency because we are aware that the structure of the cost of the bank requires some adjustments in relation to the capability we have to generate income.
Last, but not least, we think that also we have to adjust some aspect of our organization in making the group simpler.
Next question is from Giovanni Razzoli with Deutsche Bank.
Two questions on my side. The first one, if you can share with us an update of the sensitivity of the NII zeroing of the Euribor, which seems now a possibility by the second quarter of 2023 or half of 2023.
And the second question, if you -- based on your long experience both in Italy and abroad, I would like to know what's your view about what could be the downside risk of the provisioning level on the loans in case of a downturn in the GDP for a bank like Monte dei Paschi? And in general for a retail bank in Italy?
Thank you very much for your question. If I remember well, I really think one of your research mentioned in that practically, there will be a sort of resilience of quality of the asset in this environment despite the increase of the cost of energy, given also the low portion of intensive energy companies and total portfolio, right, on the overall banking system. In my -- so I'll start from the second question. I believe that if we want to be very much conservative, we can say that probably 1 or 2 points of GDP can impact overall the cost between EUR 20 million, EUR 40 million, it depends, of course of the timing and its GDP decrease is also followed by additional negative assets of the economy, like growing inflation. And also, it depends how this -- the whole European market is involved in this process of the decrease of the overall economy.
Anyway, I believe that there would be a different impact or retail compared to some small companies or with corporate companies. Our -- in terms of sensitivity, our assumption is that 100 bps rate increase will result in more or less EUR 120 million, EUR 150 million additionally in our income. And by the way, I believe that Monte dei Paschi just to be -- sorry. I think I read something recently that Monte dei Paschi is one of the bank with the highest expectation in terms of improvement on net interest income overall among the banking sector.
The next question is from Hugo Cruz with KBW.
A few questions for me, please. First, on the business plan. Can you give us a bit of context? So you set this date of the 23rd of June, do you expect -- is this going to be a business plan? A management plan that will then be submitted to the ECB? Or is it a plan that is already informed by ECB? I'm just trying to understand what happens next after you announce the business plan.
Second, could you -- the macro outlook is quite uncertain. So could you give us a bit more color what you're seeing in terms of trends in April and May? Loan volumes, fees, asset quality?
And third, can you remind us on the management overlay for asset quality? I seem to remember there was EUR 130 million in Q4. Just wanted to know if this number changed or not.
Our aspiration is clearly that at the time we are going to present the plan and -- having in mind that we have a very constructive and continuous discussion with ECB, so I believe at that time, we are going to present the plan, a significant part, the significant, how to say, key elements of the plan in some way are already in line with the expectation at least what we are trying to reach.
As far as the trend over the next 2 months, we are not -- I'm not used to give a trend by month, but normally, I'm used to give a trend a little bit midterm. So I mean, what is going to happen up to the end of the year and maybe also what is going to happen according to us in the following year. So I would prefer to not to answer to this question. And just to be more -- to have a more comprehensive answer into treat to this point at the time, I'm going to present the plan.
But I can say that as far as concerned, the asset quality, this, I feel comfortable to say, that we want to keep a conservative approach on that also because we are strongly convinced that asset quality will be one of the pillar of our business plan. And we believe we have also room for further improvement. We're optimizing the structure of our NPL portfolio. So in terms of cost of risk, we don't expect to have a cost of risk higher than what we have been reported in the first quarter.
The next question is from Riccardo Rovere with Mediobanca.
I'm not sure I understood correctly just the answer, Mr. Lovaglio, you gave to the last question, the first question of Hugo. Clear to me whether what you will present on the 23 is something that is or will be already been discussed with the authorities or will have -- will be the starting point of the discussions with the authorities. I'm not sure I understood it.
In fact, I'm just saying that the aspiration is to have our business plan that is well perceived by ECB, but -- and this is the goal. And clearly, I cannot say now that for sure, everything will be settled for the date we are going to present the plan. So -- but I'm sure that the business plan will reflect also indication of ECB. So at that time, hopefully, we are going to present a plan on which we are confident. We have also the positive validation of ECB.
[Operator Instructions] The next question is from Anna Benassi with Kepler.
My question regards the product factories, actually, the partnership you have, particularly on insurance, profit management and consumer finance. On consumer finance, the plan was already in implying an internalization of the business, so that is proceeding. What potential you see in this business that I know by the past that you know very well?
And what about AXA and Anima? Do you believe they are -- we're looking at full speed with you? Or actually, the bank is exclusive in this -- between this product, so all that could be accelerated? And if you give us an update on the Q1 results specifically in these areas.
And then last question on litigation. I hear you that the increase is related to a change in the approach on how to deal with this elephant in the room. Can you tell us what is your first sense and assessment on the situation in terms of how that could affect the results going forward?
Okay. So let's start with consumer finance. Correct, you mentioned, we started in-house of our consumer finance. Clearly, we were at the very beginning. I see a strong potential in that. As I mentioned before, I will elaborate a bit more when we are going to present the plan.
Asset management bancassurance. We are the best player, as you know, in this area, and I strongly believe that we can extract additional value going forward. Also, this area will be particularly considered in our business plan. Having in mind that despite our starting point, it is quite strong, the level of the partnership we have, the professional support we are getting and the strong specialization of our people give us room to be quite optimistic about the possibility to further strengthening this business area.
As far as litigation is concerned, I have to say that what I observed in this period in 3 months in Siena, we have a strong monitoring of this activity. Also we have best-in-class lawyer looking at these particular areas of the bank. And I think it's quite obvious that I am aware that this is a critical area for us, and we have to give clarity to the market. It is our intention to provide also further information and what is our approach in dealing with this legacy. And we will be much more precise during our business plan presentation.
[Operator Instructions] Mr. Lovaglio, there are no more questions registered at this time. The floor is back to you for any closing remarks.
Thank you. Just to say thank you very much. I'm waiting on the 23rd for presentation of our business plan.